Dow Breaks Six-Day Winning Streak as Volatility Returns

By

Brett Arends

Feb. 20, 2018 4:58 p.m. ET

Text Size

Regular

Medium

Large

Whoa. Welcome back, volatility.

Wall Street ended a turbulent day with stock and bonds both in the red, while economic bellwether and Dow Jones Industrial Average component Walmart (WMT) crashed more than 10% after earnings and guidance fell short of expectations.

Illustration:
Bloomberg News

The first day back after the long weekend marked a new and edgier mood on the Street following last week’s big rally. The CBOE Volatility Index—also known as the VIX or the Fear Gauge—jumped 6%.

The Dow fell as much as 335 points at one point during the afternoon, and plunged through the 25,000 barrier to end the day down 254.63, or 1.01%, at 24,964.75. The broader S&P 500 fell 15.96, or 0.58%, to 2716.26, and the small-cap Russell 2000 was off 13.16, or 0.85%, to 1530.37.

It was a rocky ride, with the markets opening sharply lower, staging a rally in late morning, and then turning down again in the afternoon.

Blame rattled nerves that still haven’t recovered from the turmoil of earlier this month, along with Walmart’s fall and worries about rising interest rates.

On the cheerful side of the ledger, housing-market leading indicator Home Depot (HD) beat expectations on sales and earnings.

But Treasury bonds, ominously, failed to provide a safe haven and fell along with stocks. Bonds are like seesaws: When the price falls, the yield or interest rate rises. As bond prices slid, the yield on the benchmark 10-year Treasury bond edged up nearly 0.02 percentage point Tuesday to 2.89%, after earlier touching 2.92%.

Treasuries are under pressure due to last year’s big tax cut, which will sharply increase federal borrowing and bond issuance. Big bond sales this week have already pushed shorter-term rates to their highest levels since the 2008 financial crisis. The pressure adds to a bond market already worried about the risks of rising inflation.

Hot Stock: Noble Energy

Noble Energy (NBL) shot to the top of the S&P 500 on Tuesday, helped by a strong fourth-quarter earnings report. Noble gained $2.86, or 10.9% to 429.14, while the S&P 500 slid 15.96 points, or 0.58%, to 2716.26.

The energy firm said it earned 32 cents a share, on revenue that rose 18.9% year over year to $1.2 billion. Analysts were looking for earnings of 4 cents a share on revenue of $1.18 billion. Noble said it expects production to grow at a 20% compound annual growth rate through 2020, and its board also authorized a $750 million share-repurchase program.

Wells Fargo's Gordon Douthat reiterated a Market Perform rating on the stock, but called the outlook "solid," and likes its commitment to returning cash to shareholders through its dividend and share buybacks.

Noble has broken even year to date, although it's down 21.4% over the past year. —Teresa Rivas

The Biggest Loser: Walmart

Walmart (WMT) sunk to the bottom of the S&P 500 on Tuesday, taking the market with it, after it reined in its guidance on top of a mixed fourth-quarter. It lost $10.67, or 10.18%, to $94.11. It was the stock’s largest dollar decline on record, and its largest percentage decrease since January 1988, when it dropped 10.27%.

Morgan Stanley’s Kimberly Greenberger and her team have their doubts. While holiday sales were positive for all four department stores—beating expectations—Greenberger writes that she doesn’t think this performance is sustainable throughout 2018.

She admits that margins could benefit from better inventory, a relatively strong January, and a lack of excessive promotions. But rather than marking an inflection point in fundamental performance, she believes the fourth quarter was simply a one-off rebound from the easiest traffic comparisons in a decade, helped by favorable weather.

While we could be seeing a shift in an industry that was hammered for much of 2017, she thinks it’s more likely that many of the issues that plagued retail last year will continue to weigh on stocks in 2018, from Amazon.com (AMZN) to the potential for tax-refund delays that might mar first-quarter results.

Therefore, she has an Equal Weight rating on Macy’s and J.C. Penney, and Underweight ratings on Nordstrom and Kohl’s, the latter being the only department store to increase its full-year guidance on the back of strong holiday sales.

This copy is for your personal, non-commercial use only. Distribution and use of this material are governed by our Subscriber Agreement and by copyright law. For non-personal use or to order multiple copies, please contact Dow Jones Reprints at 1-800-843-0008 or visit www.djreprints.com.